The Economic Transformation of Poland: Short Review

We all know a story of the Four Asian Tigers, when Hong Kong, Singapore, South Korea and Taiwan enjoyed robust economic growth for decades. Eastern Europe has its tiger – Poland. A country which experienced the communist rule until 1989, has written the story of its economic miracle. Despite of ample economic hurdles, the state recorded the best performance to date all the transition economies of East-Central Europe. The aim of the article is to shortly emphasize the main reasons standing behind Polish successful transition.

In 1989 the communist demise left not only political but economic void too. Indeed, a state-planned system hinged an economic performance of the Eastern Bloc countries, and the transition was deemed as the only way for salvation. Looking back, it can be seen as a passing exam – when some states failed and somewere proud of their results. Although Polish transition faced severe impediments, it ended triumphantly. In late 1989 the state had the worst rate of hyperinflation after Yugoslavia and faced budgetary tensions due to ineffective financial policies. The daunting task was fallen under Leszek Balcerowicz. Serving as the first post-communist minister of finance he carried out first transition reforms, which encompassed rapid stabilization and liberalization. Balcerowicz Plan, which was launched in 1990, was supervised by IMF. It envisaged a restrictive monetary policy, elimination of the budget deficit, extensive price liberalization and restrictive income policy with high tax on wage. As a result, 90% of Polish price controls were eliminated. It gave a rise to nearly six-thousand foreign firms, which also contributed to the economic growth. However by targeting inflation several mistakes were made including controversial $1 billion plan of saving Złoty. Despite the fact that Poland’s GDP declined between 1989 and 1992, the actual number was the lowest in the region. Moreover, inflation rates were gradually reduced by the time. However, the most credit for successful transition deserves the next finance minister.

If Germany is proud of having Ludwig Erhard, Poland should be proud of Grzegorz Kołodko. Serving as a deputy premier and minister of finance (1994-97), he faced herculean task. As inflation and unemployment were rampant he considered so-called shocking therapy as an ineffective tool.

Although transition took place, its success depended not on speed, rather on quality.  Firstly, it should be noted that Poland did not get on the so-called Washington Consensus track. Indeed, while tough financial policy, price liberalization, privatization of state assets looked attractive for fixing Latin American countries’ tattered economy, Poland focused more on an institutional building. After intensive discussions and hearings, the Polish parliament endorsed Strategy for Poland and Package 2000. So, by adopting medium and long economic policies, the state illuminated its path by knowing exactly where it was heading. Undoubtedly, politically the state headed towards European integration. Application for membership in the EU underlined Polish aspiration. Economically, Strategy for Poland and Package 2000 propelled the deliberate construction of a market system. Reaching parity between private and public sectors was fulcrum of new agenda, which included the abolition of a heavy excess tax (popiwek), subsequently followed by the commercialization of state enterprises and financial restructuring. The transition was featured by an amalgam of reforms and implementation of new laws, which on the one hand augmented speed of privatization, established the new Treasury, and finally advocated decentralization. 

As initiatives from Strategy and Package 2000 materialized, results staggered even its authors. During the period of 1993-1997, GDP of Poland accelerated to an average of 6.4%. Private enterprises burgeoned, while private sector accounted for 65% of GDP. Unemployment plummeted from 16.9% to 13.3%. Public debt fell from 86% to 49%. Needless to say that such performance was also linked to the numbers of imports, exports, and foreign direct investments (FDI). The latter accounted for 40% making Poland, most attractive country for investment within the eastern part of Europe. Finally, the state reached a level of sustained growth. To compare the Polish economy surged by 30% from 1989 to 2001. 

To sum up, the effective transition by enforcing institutional reforms made it possible to join the EU in 2004. Within ten years since membership of the European Union Poland’s GDP tripled. The number of exports reached to an unprecedented level. While countries such as Hungary and Czech Republic merely doubled per capita incomes, Poland enjoyed a growth of 40%. It is noteworthy to remind, that we are talking about country, which avoided recession during the financial crisis of 2008. The MSCI index which measures a performance of stock market was up 123% during the last 20 years. Shortly to say, transition spill over in a great political and economic success. 

After three decades Poland reaps the fruits of transition. 2018 marked as another success. Status changed over from Advanced Emerging market to Developed according to FTSE Russell. Furthermore, the latest developments generated optimistic forecasts and even some daring announcements, such as Jaroslaw Kaczynski. According to the current leader of the Law and Justice: “Poland’s economy will catch up with Germany’s by 2040”. After knowing Polish successful way of transition, such words may not seem an exaggeration.

Shota Mgeladze

Research Fellow

The opinions and conclusions expressed are those of the author and do not necessarily reflect the views of The Embassy of the Republic of Poland in Tbilisi or The Ministry of Foreign Affairs of the Republic of Poland.

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